British American Tobacco 2008 Sustainability Report

8 Future Prospects for Sustainability and CSR Initiatives in the Tobacco Industry

Given the unclear definition of the concepts of CSR and sustainability, it is first of all important that the business environment decides on a definition that explains the concepts. Blanco & Souto predicts that, “The most salient of all these possible objectives is the definition of a conceptual framework for CSR… worldwide acceptation of reporting models and instruments, and assurance engagement compromise. Within this ideal but possible setting, entities preparing sustainability reports under specific standards…will…be qualified as Ethical, Ecological or Socially Responsible, with capital letters.” (Blanco & Souto, 2009, pp.167-68). If the use of sustainability and CSR is to continue as a credible strategy for companies it is essential that a move towards a clear distinction of the concepts be established. Moreover, what seems to be a general agreement amongst theoreticians is that, “Only if CSR practices are integrated into strategic decisions taken in business will positive consequences be achieved.” (Lopez et al., 2007, p.296) and “… engagement should be based upon core competencies…” (Palazzo & Richter, 2005, p.391) and “… recognising that CSR has many facets and needs to be interpreted differently for each organisation – and made significant… towards both appropriate activity and appropriate reporting of such activity.” (Aras & Crowther, 2008, p.283). Thus, if corporations wish to be successful in their CSR and sustainability work, it is key that they engage in operations that are meaningful to the corporation’s business.
Corporations must therefore seek to engage with stakeholders in a way that adds credibility to their CSR and sustainability activities. In the discussion on the tobacco industry’s ability to create a reliable, transparent and credible CSR and sustainability strategy, it is important that we draw on the above mentioned learnings as they provide the basis for further discussion. Moreover, the previous work of BAT can function as a field of knowledge for improving their activities in the future with an active focus on creating CSR strategies that can comply with their business. Palazzo & Richter propose that, “A good corporate citizen in the tobacco industry has to develop and communicate a clear vision that leads beyond the established business pratices. Corporate transformation, from a marketing to a research-driven company (safe cigarettes as main target), might be an element of such a vision” (Palazzo & Richter, 2005, pp.397-98).
Hence, using Kuhn’s paradigms to explain the evolution of the business paradigm and the CSR and sustainability paradigm, makes sense because the successfulness of these are reliant on a fusion of the two paradigms. Wadham who argues, “…a compromise solution may emerge if we can understand sustainable development from a broader historical perspective and acknowledge the possible coexistence of the economic and sustainable paradigms.”(Wadham, 2009, p.65) supports this idea. However, there is a challenge in that Eden proposes, “… pro-business advocates try to keep NGOs, the lay public, community groups and ‘renegade’ scientists outside legitimacy by presenting them as non-rational and non-scientific, thus further branding them as inferior and ‘not to be taken seriously’.” (Eden, 1999 in Kallio, 2006, p.172) As noted above the theoreticians argue that we must see a move towards sustainability practices that link directly to the business of corporations and their stakeholders. This idea is further supported by Lopez et al. who state, “Attention is directed to demands for a wider group of stakeholders, since the firm’s success depends on stakeholders’ satisfaction.” (Lopez et al., 2007, p.287). Therefore, knowing this it is not surprising that WHO as a major stakeholder of BAT, questions its involvement with a health-care centre in Bangladesh, or that WHO questions its youth anti-smoking campaigns. These issues may be compared to Coca-Cola sponsoring a diabetes clinic in the U.S. which could become an ethical question. Even though, it may seem logical when explained, it is still a fact that the tobacco industry is involved in operations that contradict with its business. Therefore, there is a sound reason to discuss and argue for a development of the future CSR and sustainability strategy which BAT should engage in. Moreover, the existing scepticism that exists towards the tobacco industry and the lethal character of its products is important to keep in mind.
Palazzo and Richter propose four important issues that are important as to establishing a legitimate CSR engagement, “corporate philanthropy, stakeholder collaboration, CSR reporting, and self-regulation activities.” (Palazzo & Richter, 2005, p.390) and how these are not sufficiently met by the tobacco industry and thus, BAT as a company. Corporate philanthropy is the act of giving back to society e.g. donating money to university programs as BAT did when they contributed to University of Nottingham (UK) foundation of a research centre for CSR. However, this caused a major clamour within the university and the surrounding public (Palazzo & Richter, 2005). Hence, we must understand that the intentions of BAT may be good but the general public and stakeholders are likely to protest and object to such programs as they conflict with the ethical obligations which is expected from a university. Yach et al. propose that, “Funding which gives favourable publicity to a tobacco company or which is likely to show the tobacco company in a favorable light should be rejected.” (Yach et al., 2001, p.197). This as a result limits the act of corporate philanthropy for the tobacco industry. Returning to the previous notion that there must exist coherence between the CSR conducted and the company’s core business and values if BAT wishes to be accepted as a trustworthy corporation. Blanco & Souto note, “They stakeholders are concerned that existing CSR obligations are insufficient and voluntary CSR programs are inadequate.” (M.A. Levine, 2008 in Blanco & Souto, 2009, p.161). The second issue is stakeholder collaboration which is regarded as key in the act of CSR. However, using the example of the university sponsorship to illustrate the conflict that may rise between stakeholder and BAT is useful. If philanthropy done by a tobacco company causes a public outcry, the expected reaction would be a negative coinciding of the university as a stakeholder and BAT as the company. Therefore, collaboration between the University of Nottingham and BAT could reflect negatively on the University and affect its reputation as a political and ethical correct institution. The statement, “Being paid by the tobacco industry or cooperating with it threatens the reputation of the external partner” (Palazzo & Richter, 2005, p.391) supports this argument. In addition, WHO seems to refute a direct collaboration with BAT but they do not ignore the tobacco industry’s attempt to cooperate at any cost. There is evidence that WHO, being a critical stakeholder, still has an interest in a debate with BAT and its CSR activities. Wadham argues, “Partnership potentially allows companies to increase credibility and access to stakeholders…” (Wadham, 2009, p.60) and later “CSR writers suggest that partnership encourages a more sustainable approach to both CSR and core business...” (Ibid.). Thus, theory suggests that a potential collaborative strategy can be beneficial to both, in this case BAT and WHO. In their report WHO recognises this as a wish from BAT but they are very reluctant as stated in the report, “Tobacco companies are asking for open dialogue. They assert their efforts to undermine global tobacco control policy… they seek to engage in constructive dialogue with the WHO…Today WHO has defiantly acted for the benefit of the public health…” (App. 1, p. 9). Thus, recognising the tobacco industry’s effort to engage with critical stakeholders, which if done effectively, could lead to beneficiaries in the long run, is rejected by WHO. Hence, the effectiveness of stakeholder collaboration is a point of critique for the tobacco industry. The third issue, CSR reporting, can be criticised on the fact that it was previously noted that social responsible investing in the tobacco industry is experiencing a divestment due to the tobacco companies efforts to appear as socially responsible through its CSR and sustainability work. Thus, the ethical and social responsibility, which investment firms are showing in their exclusion of tobacco companies in their portfolios, supports the notion that, it is a bad idea for BAT to conduct CSR reporting. CSR reporting normally substantiates and supports social responsible investments for other firms that do not hold such a controversial product as the tobacco industry.
Therefore, it is possible to argue that the inclusion of a CSR and sustainability report in the business strategy may not prove as a long-term profitable investment. Moreover, the negative costs and thus negative influence on performance, which Lopez et al. found concerning the inclusion of CSR reports accredited by the DJSI, further substantiates this argument. The fourth and last issue, self-regulation, was questioned above as BAT used very limited standards of assurance. Furthermore, it was a question of ethics as BAT is a main sponsor of the assurance program which they use to guarantee third party control and transparency. Palazzo and Richter state, “Corporate self-regulation often lacks transparency, accountability and thus is deprived of any legitimacy.” (Palazzo & Richter, 2005. p.392) and “ “We have seen no evidence that tobacco companies are capable of self-regulation…” ” (Rondinelli, 2002, p.407 in Palazzo & Richter, 2005, p.392) both statements support this notion. Thus, the general perception of self-regulation is blurred but with regards towards the tobacco industry there seems to exist an even greater scepticism, perhaps due to the previously mentioned blurry past of the tobacco industry.

Based on these four issues mentioned by Palazzo and Richter, and the above-mentioned prerequisites for sustainability and CSR, it is clear that the future prospects of CSR and Sustainability as a concept within the tobacco industry is still open to discussion and lacks concrete guidelines for the execution of its CSR and sustainability strategies. As Blanco & Souto note, “... whatever CSR instruments is used… these instruments should fulfil: clarity, transparency, completeness, reliability, consistency, measurability, verifiability and comparability. All of these attributes implicitly need standard reference to be achieved.” (Blanco & Souto, 2009, p.161). Thus, the future for sustainability and CSR as a concept, especially within the tobacco industry, requires specific standards to work from. The required ability to measure and quantify these concepts may be key to their future. The power of trust relies heavily on agreed upon standards, and with the tobacco industry’s current situation there is evidence that in order for them to succeed and live up to Blanco and Souto’s CSR instrumental requirements, they must first of all seek to build trust. Pomering and Dolnicar identify trust in the CSR report and company as key to the general success of CSR in that they state, “Trust in the information source² is critical for CSR communication success.” (Pomering & Dolnicar, 2009, p.288).

9 Conclusion

This thesis identifies and discusses the ethical concerns which British American Tobacco must identify in order to conduct a transparent and trustworthy CSR and sustainability strategy. The rising scepticism in the general public on the health issues linked to smoking and second-hand smoking, and its importance to the political scene, justify the ethical discussion of the tobacco industry’s adaption of CSR and sustainability practices.

Moreover, it discusses the more general ethical issues linked to the concepts which may be used by corporations who wish to conduct CSR and sustainability. On the premises of the ethical issues, it discusses the general perception, namely that CSR and sustainability increase business performance. It concludes that there is no evidence that a CSR and sustainability strategy is the direct cause of increased business performance, based on an empirical analysis by Lopez et al. 2007. On the contrary they conclude that the investments required lead to negative business performance in the short-term. However, it is recognised that their analysis may have been conducted over too short a period, and thus a conclusion on the long-term business performance is not included in this thesis. The reason for this conclusion is that it was not possible to find any empirical research that was conducted over a larger period, and included companies from the Dow Jones Sustainability Index, and thus BAT. It is likely that future research may conclude the opposite and counter-argue this thesis conclusion. Moreover, this paper identifies that a general accepted standard for CSR and sustainability is perhaps the main flaw in the discussion. It is a key to most of the critique, and used as basis in the discussion on the minimal trustworthiness that applies to CSR and sustainability. Furthermore, it is connected to the concept of CSR and sustainability due to this lack of a clear definition. Even though, BAT as a company is trying to adapt a CSR and sustainability strategy, WHO one of its key stakeholders continues to question the legitimacy of BAT’s CSR and sustainability operations, due to the nature of BAT’s products. But from this thesis, it becomes clear that with a clear definition of CSR and Sustainability and accepted standards for the concepts within the business environment, BAT would be able to rely on a solid foundation and be able to create a better dialogue with WHO. Hence, as noted through stakeholder collaboration and communication, there is a chance of creating more ethical, transparent and trustworthy CSR and sustainability reports and strategies in the future. This can be used by companies globally to gain an understanding of the complexity of CSR, with a focus on sustainability reporting, and the ethical issues that must be taken into consideration when engaging in CSR and sustainability reporting. Moreover, it opens up the question of using CSR as a strategic element in business and creates a foundation for future discussions and research within the field of sustainability and CSR. A final remark should be made on the understanding of the paradigms and the context in which this thesis takes place. As noted in the methodology of this thesis, the concepts of sustainability and CSR are valid as long as they play a specific role in the business paradigm. However, based on the above-mentioned conclusions, there is some suggestion that point in the direction of a revolution of the existing paradigms. Hence, a fusion of the sustainability paradigm and business paradigm, would lead to a new understanding of the concepts. That revolution may be characterized by a clear definition of the CSR and sustainability concept. As Chalmers notes, “A scientific revolution corresponds to the abandonment of one paradigm and the adoption of a new one, not by an individual scientist only but by the relevant scientific community as a whole.” (Chalmers, 1999, p.117). Thus, the complete abandonment of the paradigm may only take place, once the adoption of a new one is accepted by the community, in this case by the business community if they manage to establish a clear definition of CSR and sustainability.

10 Summary

This thesis provides a theoretical discussion on the ethical issues that are connected to the engagement of CSR and sustainability reporting by using Kuhn’s paradigms as the framework. The discussion within this justifies the existence of CSR and sustainability reporting as a concept. Thus, the concepts of CSR and sustainability are applicable as long as they play a theoretical role in the business paradigm. It uses British American Tobacco (BAT), one of the largest firms in the tobacco industry as an example of a company that has been subject to criticism, especially on its ethical issue of its recent engagement in CSR and sustainability reporting. The World Health Organisation (WHO), a major stakeholder, opposes BAT’s CSR and sustainability operations, primarily due to the nature of BATs products. Moreover, BAT has been awarded by several indexes for CSR and sustainability. The accreditation is questioned in the thesis from an ethical point of view, discussing whether such an accrediting and assurance may influence the transparency and trustworthiness of BAT’s sustainability reports.
In addition, it discusses the general perception that CSR and sustainability efforts can have a direct influence on the business performance. Lopez et al. conducted an empirical analysis on companies that belonged to the Dow Jones Sustainability Index, including BAT. They hereby concluded that there is no positive influence on business performance for those who conduct sustainability reporting and/or use CSR as part of their corporate strategy. On the contrary there seems to be a negative outcome on business performance in the short run. This thesis uses this empirical analysis in the discussion, and concludes that there is reason to believe that the CSR and sustainability efforts may indirectly affect business performance.
Moreover, the thesis discusses the empirical analysis and the time span of the analysis acknowledging that future empirical analysis on the link between business performance and implementing an ethical CSR strategy may provide a different outcome.
The exploration within this paper is summed up in a discussion on the future prospects for CSR and sustainability in the tobacco industry. More specifically it discusses better stakeholder and corporate collaboration, noting that trust is essential to create a more reliable and ethical CSR strategy for the tobacco industry. But, there is still reluctance from WHO towards cooperating with the tobacco industry. However, the discussion encapsulates a possible solution to this resentment which WHO shows towards the tobacco industry. It concludes that a fusion of the sustainability and business paradigm would lead to a revolution. This revolution may be triggered with an agreement on a clear definition and a global business acceptance of standards for CSR and sustainability reporting, the tobacco industry would be able to use those agreed upon standards as a foundation for a future collaboration with WHO because WHO would have to accept such global standards.

11 Bibliography

Aras, Güler and Crowther, David, 2009, Corporate Sustainability Reporting: A Study in Disingenuity?, In Journal of Business Ethics, 87 pp.279-288.

British American Tobacco, http://www.bat.com last viewed: 02-05-2010
Blanco, Silvia Ruiz and Souto, Belén Fernández-Feijóo, 2009, Sustainability reporting and assurance: current situation and future trends, In Taikomoji Ekonomika/ Sisteminiai Tyrimai, 3/2 pp.155-172.
Chalmers, Alan F., 1999, What is this thing called Science? – Third edition, Open University Press with McGraw-Hill Education, Berkshire, United Kingdom
Kallio, Tomi J., 2007, Taboos in Corporate Social Responsibility Discourse, In Journal of Business Ethics, 74 pp.165-175.
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Lopez et. al., 2007, Sustainable Development and Corporate Performance: A Study Based on the Dow Jones Sustainability Index, In Journal of Business Ethics, 75 pp.285-300
Palazzo, Guido and Richter, Ulf, 2005, CSR Business as Usual? The Case of the Tobacco Industry, In Journal of Business Ethics, 61, pp.387-401.
Pomering, Alan & Dolnicar, Sara, 2009, Assessing The Prerequisites of Successful CSR Implementation: Are Consumers Aware of CSR Initiatives?, In Journal of Business Ethics, 85, pp.285-301.
Tench, Ralph & Yeomans, Liz, 2006, Exploring Public Relations, Pearson Education Limited, England
Wadham, Helen, 2009, Talking across Boundaries: Business and NGO perspectives on CSR, Sustainble Development and Partnership, In Journal of Corporate Citizenship, 34 Summer, pp.57-68.
Yach, Derek et al., 2001, Healthy Investments and Investing in Health, In Journal of Business Ethics, 33 pp.191-198.

12 Appendices

Appendix 1: World Health Organisation, 2004, Tobacco Industry and Corporate Responsibility: An Inherent Contradiction, http://www.wpro.who.int/health_topics/tobacco/publications.htm
Appendix 2: British American Tobacco, 2009, British American Tobacco Sustainability Report 2008, http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO6RZGHL?opendocument&SKN=1
Appendix 3: AccountAbility Screenshot of Global Launch Sponsors http://www.accountability.org/default.aspx?id=2974
Appendix 4: World Health Organisation – Western Pacific Region, Seeing Beneath the Surface: The Truth About the Tobacco Industry’s Youthm Smoking Prevention Programmes, http://www.wpro.who.int/health_topics/tobacco/publications.htm

1 The definition of business performance in this discussion is based on Lopez et al. definition in their empirical analysis, as they base business performance on financial indicators, such as cost, revenue and profit.

2 The word information source may here be interpreted as both the company but also the BAT sustainability report.

BA-Thesis by: Anders Wedendahl

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